Business, tax groups blast Quinn's loophole plan

CHICAGO – Gov. Pat Quinn’s proposal to end three so-called loopholes in corporate taxes got its first blast of public input Wednesday, as business groups questioned whether it’s fair and could hurt job creation while child and citizen advocacy groups praised it as a way to help pay down Illinois’ gargantuan backlog of unpaid bills.

The Illinois Senate Revenue Committee heard testimony Wednesday – the first of several planned hearings – on a plan Quinn first outlined in March to address the state’s woeful financial situation. It includes taxing the foreign dividends of multinational corporations, and in total would generate an estimated $445 million a year toward paying down the roughly $9 billion backlog.

Human service providers said the slow payment of bills has seriously disrupted the work they do for the state. Kate Armstrong, chair of Through a Child’s Eyes, a nonprofit that gives instruction and education support for at-risk pre-kindergarten students in suburban Chicago, told senators that the organization had to briefly shut down and lay off staff when the state did not promptly pay its bills.

“Nothing is worse than telling a group full of teachers who have been working hard to make a difference that they weren’t going to get a pay check next Friday,” Armstrong said.

But among the business groups opposing the plan were the Illinois Chamber of Commerce and Illinois Manufacturing Association.

During the hearing they questioned if parts of the plan were constitutional and said the changes would penalize businesses and hurt job creation at a time when Illinois already is battling criticism that it is not friendly to business.

The chamber characterized the suspension of the tax incentives as a “tax increase.”

“It sends a message loud and clear, manufacturing is not valued in Illinois,” said Carol Portman, head of the Taxpayers Federation of Illinois.

According to the proposed legislation, $320 million would be generated by taxing foreign profits paid as dividends to U.S. parent companies of multinational corporations. The proposal also would tax dividends paid by U.S. subsidiaries of companies doing business in Illinois.

Another proposal is eliminating a link between the state tax code and a federal law that allows deductions for “production activities” that Illinois-based companies move outside the state. Nearly two-dozen states do this already and it’s estimated to raise $100 million.

A third measure would require companies that have companion businesses to file a combined tax return, even if the companion is in the finance, insurance, or transportation fields, which are currently exempt. The move is expected to bring in $25 million.

Committee members said they expected long discussions on the tax “loophole” issue when the Legislature reconvenes next week for the last two months of the spring session, but that it would be competing with other high-priority fiscal issues.

The revenue proposal comes as Illinois also is grappling with a state employee pension problem that is the nation’s worst— with nearly $100 billion in unfunded liability. Quinn’s proposed annual budget will cut hundreds of millions of dollars for education.

While it wasn’t a focus of Wednesday’s hearing, Quinn has recently been questioned for approving big tax incentives for companies to stay or bring their business to the state.

In December 2011, the Chicago Democrat signed legislation giving $100 million in tax breaks and incentives for Sears Holdings Corp. and CME Group Inc., which operates the Chicago Mercantile Exchange, to keep them from leaving Illinois.

Quinn has defended the moves, saying they saved thousands of Illinois jobs.